17/01/2013

Written by: Mark Smith        Source: Financial Standard E-News

that invest in complex instruments face more stringent regulation than those that strive for simplicity, according to Equity Trustees head of corporate and fiduciary services Harvey Kalman.

Kalman warns that despite the collective investment collapses of the last five years, managed fund investors enter 2013 with little more regulatory protection than they had at the start of 2007.

He says that a 'one size fits all' approach to responsible entity (RE) regulation is too restrictive.

"The proposed reforms look at tightening the financial requirements of REs, but are likely to be cumbersome for compliance, inhibit investor choice, and prove inadequate when the next bubble bursts," he said.

"We need to recognise that investment products, and financial instruments generally, are now much more complex than they were when REs were introduced in 2000.

Kalman calls for regulation based on the size of the institution behind the fund and the complexity of the assets that a fund is allowed to invest in.

"In my view, the regulators need to recognise there are different categories of management, and treat them differently.

"For instance, there are large institutions offering a range of collective investments but with strong financial backing; smaller offering complex products with increased investor risk; and small offering uncomplicated that do not use complex financial products.

Kalman says each needs different regulatory consideration.

"Such an approach does not have to make regulations more complicated; however it increases the likelihood that in the event of a fund running into problems, there is someone left standing to return money to investors. It will also reduce the possibility of malpractice.

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